The AI App Race Is Far From Over

While the United States currently dominates the development of large-scale artificial intelligence models, the competitive landscape for AI applications tells a different story. According to the 2025 Globalscape report from venture capital firm Accel, Europe and Israel are emerging as significant players in the application layer, with companies like Lovable and Synthesia gaining prominence. The data reveals that cloud and AI applications in these regions have secured private funding at a rate of 66% compared to their American counterparts this year.

Philippe Botteri, a partner at Accel, notes a dramatic shift over the past decade. “When we began this report ten years ago, Europe’s funding was only one tenth of the U.S. market,” he explained. He attributes this growth to a maturing ecosystem where founders and investors have developed a sophisticated understanding of building successful software companies. This self-reinforcing cycle has been gaining momentum for an entire decade.

This perspective is echoed by Jonathan Userovici, a general partner at Headline based in Paris. He points out that professionals from Europe and Israel are increasingly staffing major AI research labs. Across diverse sectors such as legal services, healthcare, manufacturing, and marketing, Userovici observes founders who blend world-class technical talent with deep market expertise. Headline’s own “AI Europe 100” report, published earlier this year, identified a cohort of AI-native application startups poised for success, selected for their rapid growth, strong teams, and technological innovation.

A defining characteristic of this new wave of AI companies is their unprecedented growth velocity. Accel highlights that a new generation of AI-native applications is achieving $100 million in annual recurring revenue in just a few years, a milestone that historically took decades to reach. Botteri emphasized this acceleration, stating, “They are expanding more rapidly than any sector we have observed previously, and they are accomplishing this with remarkable efficiency. The revenue generated per employee is at an all-time high for software companies, a trend evident on both sides of the Atlantic.”

Despite the rapid ascent of these new players, Botteri clarifies that established cloud software companies are not disappearing. Accel’s Public Cloud Index shows a 25% year-over-year increase, with these incumbent firms actively integrating agentic AI capabilities into their existing products. Some private companies are adopting AI so comprehensively that they are effectively becoming AI-native. Botteri cited Doctolib, a company within Accel’s portfolio, as a prime example of this rapid transformation.

The outlook for European companies focused on developing foundational AI models, such as Mistral AI, is more cautious. Accel’s perspective on this segment is less optimistic, though Botteri does not completely rule out the potential for future leaders to emerge, particularly in the realm of smaller, specialized models. He simply noted that, for now, “it is not a very target-rich environment.”

In stark contrast, venture capital firms are vigorously competing for stakes in the AI application layer. Questions about the long-term defensibility of these businesses persist, but Botteri argues that a strong, product-centric approach coupled with swift market adoption can create a sustainable competitive advantage.

Another critical insight challenges the simplistic view that the AI market is divided solely between models and applications. Lotan Levkowitz, a managing partner at Grove Ventures in Israel, suggests that the current market focus is misplaced. “We see most of the market today chasing models, compute, and actions, and we think that data is undervalued at the moment,” he stated. “We strongly believe that companies focused on proprietary data and building data flywheels represent a very lucrative opportunity.”

(Source: TechCrunch)